–Q4 GDP revised down to -0.6% q/q; +1.5% y/y
–Q4 GDP below median forecast of -0.5% q/q; +1.7% y/y
–Q4 Household Spending -0.1% q/q; +0.4% y/y

LONDON (MNI) – UK economic growth was revised lower in the
final quarter of last year, with household spending falling for the
first time for nearly two years, according to figures released by
National Statistics Friday.

The figures revealed that GDP fell 0.6% on the quarter in Q4 2010
and was up 1.5% on the year. Analysts had expected to see no revision to
the preliminary estimate which showed output down 0.5% on the quarter
and up 1.7% on the year.

There was a downward revision to service sector output, which now
shows a 0.7% decline on the quarter compared with an originally
estimated 0.5% drop as well as a small downward revision to production
were behind the latest quarterly revision.

National Statistics confirmed it believed that the severe weather
seen during December had hit growth, estimating that taking the weather
into account GDP probably would have fallen 0.1% on the quarter.

The new data on expenditure is likely to raise fears over the state
of the household sector and questions about weather the external sector
is really going to be the engine of growth that many are forecasting it
to be.

Household spending fell 0.1% on the quarter in Q4 and was up 0.4%
on the year, the first quarterly decline since Q2 2009. The fall in
spending cut quarterly GDP growth by 0.1 percentage point.

The largest downward hit to GDP came from investment spending,
where gross fixed capital formation plunged 2.5% in the quarter,
knocking 0.4 percentage point off overall growth. National Statistics
said the weather may have depressed investment, especially in the
construction sector.

Net trade also proved to be a drag on growth, hitting the quarterly
GDP change by 0.3 percentage point. Following the decline in Sterling
over the past few years, most economists and the Bank of England expect
the external sector to drive growth, but there is little sign this has
happened so far, although the severe weather will have had some impact
on exports during Q4.

Rather surprisingly, given all the talk of government austerity and
spending cuts, it was the government which added most to growth in Q4
(0.2 percentage point), with spending rising 0.7% on the quarter.

As the expected spending cuts kick in hard this year, questions
will be raised about just where growth in 2011 is going to come from.

–London newsroom: 44 20 7862 7492; e-mail:drobinson@marketnews.com

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